AppLovin Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 12, 2025

There are 18 speakers on the call.

Operator

Welcome to AppLovin's earnings call for the fourth quarter and year ended 12/31/2024. I'm David Hsiao, Head of Investor Relations. Joining me today to discuss our results are Adam Frugge, our Co Founder, CEO and Chairperson and Matt Stump, our CFO. Please note our SEC filings to date as well as our shareholder letter, financial update and press release discussing our fourth quarter annual performance are available at investors.applevin.com. During today's call, we will be making forward looking statements including, but not limited to, the future development and reach of our platform our expected growth opportunities, the result and timing of our strategic transactions, the efficiency of our operations, the expected future financial performance of the company, and other future events.

Operator

These statements are based on our current assumptions and beliefs, and we assume no obligation to update them except as required by law. Our actual results may differ materially from the results predicted. We encourage you to review the risk factors that are most recently filed Form 10 Q for the third quarter ended 09/30/2024. Additional information may also be found in our annual report on Form 10 ks for the fiscal year ended 12/31/2024, which will be filed later this month. We will also be discussing non GAAP financial measures.

Operator

These non GAAP measures are not intended to be superior to or are subject to for our GAAP results. Please be sure to review the GAAP results and the reconciliations of our GAAP and non GAAP financial measures in our earnings release and financial update, available on our Investor Relations site. This conference call is being recorded and a replay will be available for a period of time on our IRR website. Now I'll turn it over to Adam and Matt for some opening remarks, then we'll have the moderator take us through Q and A.

Speaker 1

Thank you all for joining us. Q4 was a major milestone, arguably our most foundational period since the Axon upgrade in 2023. For the first time, we captured meaningful holiday shopping advertising dollars and witnessed the impact of an advertising category beyond solely gaming contributing to our growth. I'm sure many of you are curious about how much revenue our e commerce category contributed. While we're not breaking out revenue by vertical because that's not how we view our business, I'd like to provide some perspective.

Speaker 1

We operate a platform that reaches over a billion people in mobile games daily with their engagement times comparable to social networks. Historically, most of our ads focused on advertising for other games, but now we're attracting a broader set of advertisers. Q4 results show that our models can perform in other categories in addition to continuing to improve performance for gaming customers. This breakthrough is only the beginning. We've now also validated that our platform success isn't only limited to direct to consumer brands.

Speaker 1

Early pilots have shown positive outcomes for a range of advertisers, suggesting that any business in any vertical can harness the power of our platform. This opens up a massive opportunity as there are over 10,000,000 businesses worldwide who advertise online that could eventually use our platform profitably. By delivering incremental value, we position ourselves as an engine for growth. It's a win win for brands, consumers and shareholders. These early results solidify our vision of building one of the most influential marketing platforms in the world.

Speaker 1

Where we once focused on gaming, we're now positioning ourselves to serve the entire global advertising economy. Importantly, the users engaging with our network aren't just shifting existing purchases. They're discovering new products while playing the games they love, generating truly incremental demand. By enabling these discoveries, we're expanding the global economy for consumers and advertisers alike. Demand from advertisers wanting to join our platform is high.

Speaker 1

Currently, our systems are still being fully developed and lack the full self-service capabilities needed to handle growth at scale. Our priority this year is to develop and roll out more automated tools to allow countless new businesses to tap into our platform. In line with this expanding focus on advertising, we've been assessing how best to invest our resources to serve the needs of a global client base. Seven years ago, we began acquiring gaming studios to help train our earliest machine learning models, an invaluable step in shaping the AI that underpins our Axon platform. However, we've never been a game developer at heart.

Speaker 1

We have immense respect for the creativity it takes to build games, including from teams in our studios. Today, we're announcing we've signed an exclusive term sheet to sell all of our apps business. Matt will share further details, but I want to emphasize to our teams, you'll soon be part of a company that specializes in and champions game development. While it's bittersweet to part ways, we're excited for your future and immensely grateful for your role in getting us to where we are today. Finally, I'd like to highlight our favorite metric going forward, adjusted EBITDA per employee.

Speaker 1

As we're transitioning to a pure advertising platform, our focus will be on productivity, automation and building lean, high impact teams. In Q4, we had approximately $3,000,000 in run rate adjusted EBITDA per employee in our advertising business and we expect that number to rise as we refine processes and scale our business. This metric underscores our commitment to operational excellence. Thank you for your continued support and partnership as we enter this next phase of growth. I'm more confident than ever that we're building a platform with the potential to transform global marketing.

Speaker 1

With that, I'll turn it over to Matt for a deeper look at our financials.

Speaker 2

Thanks, Adam, and good afternoon. I'm happy to announce we had another strong quarter with total revenue increasing 44% from the same period last year to $1,370,000,000 and adjusted EBITDA increasing 78% to $848,000,000 achieving a 62% adjusted EBITDA margin. This represents an 89% flow through from revenue to adjusted EBITDA. In the fourth quarter, we generated $695,000,000 in free cash flow, up 105% year over year. Quarter over quarter, our free cash flow grew 28%, representing 82% flow through from adjusted EBITDA to free cash flow.

Speaker 2

Free cash flow grew slightly more than our adjusted EBITDA growth over the same period due to the timing of cash tax payments. At the end of the fourth quarter, we had $741,000,000 in cash and cash equivalents and $340,000,000 shares outstanding. During the quarter, our advertising business continued to drive increased performance for our mobile gaming partners combined with positive early results for e commerce advertisers during the holiday season. The advertising business generated $999,000,000 in revenue and $777,000,000 in adjusted EBITDA, achieving a 78% margin. Quarter over quarter flow through from revenue to adjusted EBITDA was 75%, which is slightly lower than our normal levels.

Speaker 2

As I previewed last quarter, this was due to a step function increase in our data center costs. Flow through will normalize from here as we gain leverage on this increase in GPU costs. Before we get into the financial performance for our Abs business, as Adam mentioned, we're excited to announce we've signed a term sheet to divest our Abs business. Total estimated consideration is $900,000,000 including $500,000,000 in cash, with the remainder representing a minority equity stake in the combined private company. Subject to regulatory clearance, we hope to close this transaction in the coming quarter and look forward to seeing the success of this business under new leadership.

Speaker 2

Our apps revenue for the quarter was $373,000,000 a 1% decrease from last year, with $71,000,000 in adjusted EBITDA, representing a 19% margin. Turning briefly to our annual results. Revenue for the year was $4,700,000,000 that's an increase of 43% from last year. Adjusted EBITDA was $2,720,000,000 that's an incredible 81% increase from last year at an adjusted EBITDA margin of 58%. Free cash flow for the year was $2,100,000,000 representing an impressive 76% flow through from adjusted EBITDA of $2,720,000,000 This quarter, we withheld a total of 1,600,000.0 shares for a total cost of $5.00 $8,000,000 For the full year, we repurchased or withheld a total of 25,700,000.0 shares for a total cost of $2,100,000,000 I want to pause here to emphasize this point.

Speaker 2

During the year, we had $2,100,000,000 of free cash flow and spent $2,100,000,000 on our shares at a weighted average price of approximately $83 per share, illustrating the commitment we've communicated to drive shareholder value through prudent capital allocation and an investment in our own shares. Finally, turning to our financial guidance for next quarter. In light of the transaction we highlighted here and the continued focus on the advertising business, we will provide guidance for each of our segments separately. In the first quarter of twenty twenty five, for the advertising business, we anticipate to deliver between $1,000,000,000 and $30,000,000 dollars and $1,050,000,000 in revenue, with adjusted EBITDA between $8.00 $5,000,000 and $825,000,000 targeting an adjusted EBITDA margin of 78% to 79%. We expect apps revenue to be between $325,000,000 and $335,000,000 at an adjusted EBITDA of between $50,000,000 and $60,000,000 Now with that, let's move to Q and A.

Speaker 3

Thanks so much, Matt. And again, as Matt mentioned, we will now begin the question and answer session. Please be sure to unmute and turn on your video before asking your question. We will take as many questions as time permits. And since we do have many questions today, please be patient as we move through today's list.

Speaker 3

And our first question will come from Clark Lampen with BTIG.

Speaker 4

Hey guys, good morning. Hopefully you can hear me okay. Yes, I can hear you. Curious, Adam, a lot to dive into I think around commerce, but I want to make sure that I understood I think one point that you made in your prepared remarks, which is you're seeing early benefits for a range of different brands in a variety of verticals beyond just sort of DTC marketers. Does that suggest that as you scale, sort of your non gaming business over the course of the year that as we move into self serve, as we're addressing more global audiences, it's not going to be just DTC marketers or is that an opportunity that you sort of identified as one that works, but maybe we're not necessarily capitalizing on that near term?

Speaker 1

Thanks, Clark. You basically answered it for me. But when we put the platform together, we really strategically made a choice to go after DTC commerce. But what we knew is that if the tech works there, it's going to work on everything. And so sort of privately and quietly as we've gotten onboarding from clients and other categories across a wide range of categories, we've been seeing that the models are working there.

Speaker 1

And what I was announcing just just a couple minutes ago is that we're seeing success across any category that comes onto the platform, which gives us a lot of confidence that as we go through the year, we release more tools and really go into more of a self-service and open state. We're going to be in a position to go after the very, very large set of advertisers that are in the 10,000,000 plus range in the world over the next coming quarters, years and decade plus. This is something that we aspire to do and we're going to take our time on because I do want to caveat it with an important point that ties back to our culture. We're spending quite a lot of time trying to build tools to automate the entire system so that we're not looking at a massive revenue opportunity in front of us and suggesting that we have to go hire people to go after it. We're going to continue to stay diligent and lean and we're going to use tools and AI and automation to deliver the same type of solution and success for advertisers that come on board in the future, but make sure they come on board into a platform that hasn't changed anything from the cultural values that have gotten us to this point.

Speaker 4

Okay. Within that same list that you just sort of talked about with the dashboard automation, at the bottom of it was CTV advertising. And I don't want to do a full audit of sort of the world deal, but I'm curious, if you could give us a synopsis of sorts of maybe what happened last time around that proved to be a little bit different relative to that initial thesis. And now maybe what's changed lately that at this point in time has prompted you to, I guess, shift focus or maybe focus more on that supply opportunity? Thanks.

Speaker 1

Yes. So I'll say we haven't really focused on it yet at all. When we bought Whirl, the idea was that they're connected to to the media companies, and we wanted to get supply online, not too dissimilar from the Max auction so that we have the access to supply. Our core business and the vast majority of revenue comes from the DSP side. So advertisers coming to us and us helping them place ads, but we need supply.

Speaker 1

Rolls brought a ton of supply online. And last year, what we had available to us to show into the ad slot were gaming ads. That part of the platform is live. But if you think about a gaming ad on a full screen television asking user to go download a game on the phone, it's just not that compelling a full screen TV ad. We didn't see a single gaming ad on the Super Bowl.

Speaker 1

Right? What we can expect though is that consumer ads and DTC commerce and then across a wide range of categories like fintech, automotive, etcetera, as these come onto our platform, extending that type of creative onto the big screen could be quite compelling. Now it's not without its challenges. There are attribution problems. There is a lack of a call to action.

Speaker 1

So there are difficulties to make this work, which is why we're not saying, hey, this is a layup. It's a challenge. If we are able to do it and do it successfully, it'll open up another massive channel of performance advertising on the big screen probably for the first time in history. And that's why I keep mentioning it because it is a huge opportunity and one that we're gonna be going after building into this year.

Speaker 5

Thank you.

Speaker 3

And our next question will come from Ralph Schackart with William Blair.

Speaker 6

Hey, good afternoon guys.

Speaker 7

Thanks for taking the question. First question is just on model enhancements. Adam, I know each quarter could be volatile and unpredictable, but can you just maybe give a sense this quarter, what you saw in terms of model enhancements and how much that may have been added up to growth? And then I have a follow-up.

Speaker 4

Yeah.

Speaker 1

Hey, Ralph. So we've we've sort of broken down the growth factors across a couple different facets. One is just ongoing learning where the model is just improving itself, that we expect to capture every single quarter. We haven't seen a slowdown there. That contributed to growth in the quarter.

Speaker 1

There's then another facet, which is iterative and incremental improvements on our pre existing model. That sort of happens along the way as we go. We don't break those out. Those are, again, unpredictable and not huge, but those are not those step functions that you've seen in past quarters. We had some of that in the quarter as well.

Speaker 1

And you've got these big incremental lifts to a new model. So analogy I've drawn is to a CHaT GVT four, four zero one, etcetera. And so as their models increment, the model gets more complex and smarter. We have the same thing. This quarter, we did not have one of those.

Speaker 1

So then you see this outsized growth. And then then the question is, okay, where did it come from? And I touched on this in my talk track. We've got seasonality in Q4, which traditionally we've never been able to take advantage of, and that's built around shopping and shopping behavior. And that this quarter, we were able to take some advantage of because we're starting to see the e commerce product really take off.

Speaker 1

The other part of it is that in Q4, you also have people having more time to spend on mobile devices, especially during the holidays. And during that time, people are more likely to consume and transact in mobile games. So naturally, every single year, Q4 is a very good healthy quarter for marketing mobile games. So it was a combination of the baseline, which is just our models are continuously getting smarter on their own, some team effort on incremental improvements on the models, and then seasonality across both our existing games business and our new up and coming e commerce business.

Speaker 7

Great. Just maybe a follow-up, and then Tripp, it's for you or Matt, but just in terms of e commerce, obviously, a lot of excitement here and things seem to be going really well. Do you still I think before you've talked about it, contributing to be a material contribution in 2025, just curious if you still think that's true, A. And then B, can you just give us a sense of just the potential for incremental growth or how you might frame the opportunity as we're sort of thinking about our models for 2025? Thank you.

Speaker 2

We still feel very confident, Ralph, in the ability for us to contribute a material portion of revenue from the e commerce opportunity in 2025. But again, it's very difficult to predict when and how much that growth is going to come in during the period period in 2025. So I think we'll all see it when it comes, and then we'll provide more details then.

Speaker 1

And then what I've given consistently is, look, our business, predictably, has got 20% year over year growth in it. And that's from just the baseline of operating within the category that we've always traditionally operated in. Then you've got these things that can drive material upside. That's really exciting for us. They're unpredictable.

Speaker 1

And when things are unpredictable, a lot of times people assume they're gonna be unpredictably bad. Well, in our business, we've got two things that can be unpredictably really good. One is these model enhancements. We're really, really early still in AI development and research, both inside our company and then obviously externally too. This is not a field that's mature.

Speaker 1

It's early in its existence. It's only going to get better. And when our models get better, we've all seen the impact to revenue. And the other piece is we've always been a closed managed platform specifically for mobile games. We now have a lot of proof of life in e commerce.

Speaker 1

You've seen it on Twitter. Yeah. A lot of the noise from customers that are in, but we have not let a lot of customers onto the platform yet as we've been on pilot. As we go more and more open and start attracting thousands and tens of thousands, hundreds of thousands of customers to come on over the coming quarters and years, the business is going to continue to show compelling growth. We look at it as one single business and better monetizing the billion plus daily actives that we see, we don't think about it as revenue from each category matters.

Speaker 7

Thanks, Al. Thanks, Al.

Speaker 3

Moving on to Jason Bazinet with Citi.

Speaker 6

Thanks. Would it be possible to share, how many people are on your pilot now for e commerce?

Speaker 1

We've not broken it out. I mean, if you do industry checks, look at Twitter, there's enough noise where you can assume it's not in the tens. It's certainly not in the thousands. We're limited by core team. It would surprise you how small we maintain our teams.

Speaker 1

I mean, I do talk about this EBITDA by employee number. We really do take that seriously. We've got around a thousand people on the entire advertising business, including all the segments of it, adjust, at Whirl and the AppLovin businesses. The e commerce go to market team is roughly 20 people. So to give you a sense of how lean and automated we run, that should give you a sense, but that team is not gonna be able to manually onboard a lot of advertisers in a short amount of time.

Speaker 6

Great. And this and this goes back to your self serve comment that you that you made. Right? That's really what's going to open up the aperture to onboard more clients.

Speaker 1

Self serve and automated tools are going to be really, really helpful. And so if you look at just the numbers, what gets us really excited is in a limited pilot of a few customers on the platform, we're driving actually interesting revenue from this category. So as we start opening up, we think it's gonna be really impactful to the businesses of our clients. It's also very, very impactful for the publishers that we work with. All this inventory is mobile games, and it adds variety to the advertising that the customer is getting on a mobile game.

Speaker 1

It also removes constantly the customer getting an ad on a gaming publisher for a competitor of that publisher. So that's really, really valuable because as you think about the growth factors that we've got just embedded into the business, better monetizing the inventory that we have, but also bringing on more supply, a lot of gaming publishers, the biggest ones have traditionally been fearful of bringing on supply because they do not wanna show their competition's ads in their games. Well, now that we're able to show that we have expertise marketing to any category, that's gonna open up a ton more supply to come online, especially into our Max platform over the coming years as well.

Speaker 6

Thank you.

Speaker 3

Our next question will come from Vasily Karasov with Cannibal.

Speaker 8

Thank you. Good afternoon. Congratulations. Adam, wanted to ask you this bigger picture question. As you are rolling out your e commerce solution offering, are you seeing already any kind of response from the incumbent competitive competitors?

Speaker 8

Because, if if I were one of them, I would look at your success in gaming, right, and would probably think I need to do something about it. So I was wondering how what you're seeing? Are you prepared for this? And in general, once you roll it out, to full full scale, what do you think the industry will look like? How will it be different from what it is today?

Speaker 1

Yeah, so I mean, look, we don't look at competition all that much. What I will say is that we're not a platform that's taking the same dollars away from someone else. So let's compare to social. If you've got a mattress manufacturer advertising on social today and driving a certain amount of business and they come on to our platform, what they're seeing are new transactions from customers that they wouldn't have otherwise gotten to respond to their ads. Whether those customers were on social or not might be an issue, but certainly there's a lot of overlap.

Speaker 1

But a lot of customers just won't notice ads in one environment. Now in our environment, we have a full screen video ad that captures attention, and they come on to our platform and they're driving incremental sales. So what does that mean? That means that if they were spending $5,000 a day on social, they're not gonna come to us and say we're gonna spend $5,000 a day on you in a performance manner and take the 5,000 over here down to zero. They're now gonna be spending $10,000 a day.

Speaker 1

And this is what I keep talking about and referring to as we're expanding the economy because it's incremental and entirely performance based. The advertisers are getting measurable profits from the marketing. That's gonna expand their business. They're gonna then have to go get more inventory. They're gonna then be able to sell more product, and the whole economy will expand without causing any detrimental harm to competitors in the ecosystem.

Speaker 8

All right. Thank you very much.

Speaker 3

Loop Capital's Rob Sanderson has the next question.

Speaker 9

Thank you. Good afternoon, everybody. I wanted to ask a question on your go to market for the e commerce and now new verticals. Like the playbook seems really simple, and I guess that's part of the strategy. Can you kind of discuss how the strategy may have evolved a little since the pilot to now kind of going through holiday season?

Speaker 9

Any key learnings or pivots? Obviously, it's self serve is going to be a big unlock, but just how are you thinking about going to market? And then, you know, anything you can share on priority areas for demand generation in 2025? And then I have a follow-up.

Speaker 1

Yes. We've been really exclusively focused on sort of mid market B2C. I call that somewhere in the neighborhood of $10,000,000 to $250,000,000 of GMV. These are companies that tend to move fast and they don't need a big team on the other side to bring them on board. And the legal process is much, much shorter.

Speaker 1

We haven't gone after the very large brands, so no one in this pilot are companies that are incredibly large. And then we're not focused on the very, very small while we have to manually go after these folks. In the middle, because of the social noise and the feedback loop, the really positive results that customers are getting early in the pilot, we've got just customers coming to us. So there's a long, long line out the door, which means we're onboarding as we can onboard. Nothing has changed through the holidays.

Speaker 1

The team's just bombarded with work. They had to work a ton during Black Friday. But other than just the the really, the sheer volume that we're trying to process on helping clients get onto the platform and see that positive result, there's nothing else that's that's changed or will change until we get the tools out the door that will allow any customer to come in and in a self-service manner be able to unlock the same type of result that the folks right now are getting with our managed support.

Speaker 9

Okay. Thanks for that. And then, question, how much category specific optimization is required to move sort of these non DTC adjacencies? Like, does Axon kind of figure this out on its own? You start driving conversions and it's the model starts to figure it out and maybe the team can steer it with vertical specific tweaks or whatever?

Speaker 9

Or, you know, how much product work is required to just sort of keep expanding for these non DTC categories?

Speaker 1

Yeah. I referenced it because it works out of the box. So we don't have the resources to be building custom models for every single vertical, at least today. The goal is to continue to build a more complex model that's smart enough to figure out how to market any product on the other side. That's what we're seeing where these companies and other categories across a wide range are just plugging in and it works.

Speaker 9

So the challenge is really just go to market and and creating awareness of those types of advertisers and whatnot?

Speaker 1

A %. We'll have a challenge of get the tools out so that we can bring more and more companies on, and then we'll always have this challenge that we're trying to sell a product where they're able to advertise and do it profitably and have it be incremental and have all of that be measurable. So long as that is the result across every single advertiser relationship with our platform, there'll be a lot of positive noise out there about the platform and the offering, which will continue to bring us customers in an organic manner.

Speaker 9

Thank you, Adam.

Speaker 3

And we'll now hear from Jim Callahan with Piper Sandler.

Speaker 10

Thanks, guys. Congrats on the nice report. So we've been getting some questions on how you're servicing some of the extra e commerce demand. Can you talk about maybe, like, what kind of inventory is converting best and if perhaps this is different from the inventory that converts better for gaming?

Speaker 1

It's all the same inventory. It's full screen video ad that sits on top of the billion plus daily active users playing games, but we don't have access to differentiated inventory. It's a unified auction. Sometimes an ad for a mattress will be the one that's selected. Sometimes an ad for Candy Crush will be the one that's selected.

Speaker 1

It all depends on what the model does. But the end user and the end supply is all the same across all categories.

Speaker 10

Got it. Okay. That that is helpful. And apologies if you talked about this in the beginning. I was having some audio issues.

Speaker 10

Looks like you you're rolling out twenty eight day models. Has there been any sort of early feedback here on the gaming side? And could that drive kind of incremental spend, this year?

Speaker 1

Those have been out for, I think, a couple of quarters now. And and obviously, I think if you talk to game developers across the border, models tend to work really in a compelling way for all of them. The longer models are the most highly most performant models that we deliver. And so they have driven up the ability for the mobile customer to spend more profitably on our platform over the last couple of quarters.

Speaker 10

Got it. Thank you.

Speaker 3

Sorry about that everyone. And we'll now hear from James Heaney with Jefferies.

Speaker 5

Great. Thanks guys for the question. One of the big questions that we've been getting from investors is just around the take rate dynamics between gaming and e commerce. Understand that you don't charge a fixed rate like other ad tech platforms, but just would be curious how to think about just the overall mix of the business as you go more towards e comm. Does that have any impact on the take rate?

Speaker 5

And then I had a follow-up.

Speaker 1

Yes. Look, as we get better and monetizing the inventory that we buy, the take rate naturally goes up. On the flip side, we don't optimize the take rate. We never have. So the system is willing to buy a user 1% or 99%.

Speaker 1

It really doesn't matter. It's going out and buying users that it thinks it can out monetize from what it has to pay regardless of what the end result is. But it is important to understand that there's a market, we're paying the highest price the publisher can get from anywhere. And the better and better that we get, the stronger our business is going to get because that take rate can expand.

Speaker 5

Yes, that's helpful. And Matt, now that e commerce is obviously becoming a much bigger percentage of your business, can you just talk about the seasonality and how we should be thinking about that going forward as it relates to both the revenue growth and the expense profile? Thank you.

Speaker 2

Yes. On the expense side, it shouldn't affect us much whatsoever. Obviously, the expenses are primarily data center costs and payrolls. So those costs are more driven by usage rate. And we've kind of communicated in the past that as we grow revenue that we're expecting roughly 10% on an annual basis is that drag from incremental data center costs as we grow revenue.

Speaker 2

So there shouldn't be much fluctuation there. And then on the e commerce side of the business, as we grow and e commerce becomes a larger portion of the overall pie, and as we start to move towards it being a material portion of the overall revenue, obviously, we'll be subject then to e commerce seasonality and everything that we've talked about in the past. Obviously, Black Friday and the holiday periods will see slightly larger periods of revenue.

Speaker 5

Great. Thank you. Welcome.

Speaker 3

Chris Kantarich with UBS. Please go ahead with your question.

Speaker 11

Great. Thanks for taking the question. Could you just talk a little bit more about the 1Q sequential growth drivers of the e commerce business? Is this should we be thinking about this more same advertiser spend or more driven so by new incremental advertisers?

Speaker 1

Well, we haven't broken out e commerce, right, but 1Q in a traditional advertising business, typically 1Q steps down. You have two less days and you've got seasonality effect in the fourth quarter. So we would have that for sure in the e commerce category across the current advertiser base. If we didn't add a single new advertiser, then by definition that category couldn't expand in Q1 versus Q4. But as a whole, we're guiding to expansion in the business even in Q1 against Q4.

Speaker 1

And frankly, that's just because our business is growing really quickly right now. And we're guiding that way implying that I think it was a 4% quarter over quarter guide up with two less days. You have 2% less days because we're confident that just as a baseline level, regardless of seasonality or any bump that we had in Q4, you're going to have continued growth into Q1.

Speaker 11

Got it. And just one quick follow-up. As you think about the cohort of e e commerce advertisers that have been engaging with you for a longer period of time versus some of your newer ones, what are you seeing from the willingness to spend into higher daily spend thresholds?

Speaker 1

I mean, it's volatile only because we got into the category right into q four. So a lot of these e commerce companies go bonkers going into Black Friday and going into the holidays. And then just we're we're even learning the business model right now. As you go into Christmas time, they're sort of out of inventory and then they got to go replenish inventory. And so they'll spike, they'll drop, they'll come back.

Speaker 1

But ultimately, we're a performance marketing business. And so as they get inventory replenished and they get into Q1, they ramp back up. And so we see volatility just due to the nature of the business, but they see great result on the platform. So that means over time, as you go normalize for that seasonality, they'll just be consistent lines of revenue for us that should be growing, not only should be growing because of their success on our platform helping their businesses become larger, in which case they'll reinvest more into marketing, but also because we're really early on this. It's only been a matter of a few months so far.

Speaker 1

We're still in one of the earliest versions of our model. That model in this category is a couple years behind on the evolution of a model to the gaming model. So we've got a long runway of of a long roadmap of things to do to improve the gaming side and the gaming models are years ahead of now the e commerce model. And so we're playing catch up to the efficacy of that gaming model. So our platform is only going to get better and better as we go on and go forward from here.

Speaker 11

Thank you.

Speaker 3

The next question comes from Omar DeSouki with BFA. Omar, you're currently muted.

Speaker 12

Great. Thank you. Okay. So I'm intrigued by this notion that your technology works for many different types of advertisers. It seems that everyone is calling the non gaming e commerce, okay.

Speaker 12

And within e commerce, there are different types of, I guess, categories, some products, some subscriptions, things like that. You put out the Axon Pixel, so e commerce merchants have that on their website now to help you attribute. Is that enough to access all of these different types of e commerce advertisers? That's the first question. So really the question is, is all of your technology deployed at least on the attribution side to access that 10,000,000 advertisers in the world?

Speaker 12

Okay, that's the first question. And then given that your AI has shown such efficacy, is it now going to start working for in app install for non gaming categories? This would be like non gaming apps. Is that now a growth segment at 25? Because I think to date, that's been a very, very small part of your business and I'm wondering if that's about to inflect as well.

Speaker 1

Yes. So, great question. So the first one, I think you said is that have we deployed all of our technology for attribution and being able to bring on customers on the platform? We We certainly have a pixel integration. That's gonna be consistent for any website to be able to advertise on our platform.

Speaker 1

But I wouldn't say that in any aspect of this business that we're at maturity and all the technology that we can release, you can always do more to get to more attribution that's accurate with advertisers. And so we're working on continuously adding tools to that. So, I will say, though, it obviously works. It works in a category of websites and ecommerce. We're seeing it work in broader than that other categories of of non gaming on the web.

Speaker 1

And so any type of customer, once we're self-service, will be able to come into the platform and advertise as long as they have a website. Then you've got other types of advertisers. You've got game advertisers and you've got non gaming app advertisers and then you've got websites who also have an app. Those last two, we have to do work to bring online, but it's work that we'll be doing throughout this year. So it's not something where I think you said we'll inflect in '25.

Speaker 1

It's not something that is a 25 thing. It's just something that's in our roadmap that we're actively working on. And we do expect that then opens up even new categories as we go into later through this year and then next year and beyond.

Speaker 10

Thank you.

Speaker 3

Moving on to Martin Yang with OpCo.

Speaker 13

Thank you for taking my question. First question is for Adam. Since you took oversight of the HR function last quarter, what are the changes you can talk about on recruiting, streamlining the operation, anything worth highlighting to us?

Speaker 1

Look, I mean, my focus has been on streamlining the team and processes and getting really focused. And we did announce that app sale that we're working on as well in our talk script. And really, this is all about just we see a lot of opportunity in front of us. We have a long roadmap, a lot of things to do. And when you have that organic opportunity, you got to get everyone focused on it.

Speaker 1

And so it's really been around streamlining. I mean, we're one of the most financially lucrative businesses to be constantly announcing layoffs. Now we don't want to constantly be doing that. But since I took over HR, my job was to go, where are areas of the business that are not perfectly aligned with these organic opportunities and let's start shutting those so that we can really narrow in and focus on what's in front of us. And so we're really getting to that place.

Speaker 1

And once we get there, I think it's going to be even more exciting times here.

Speaker 13

Thank you. My another question is about, you talked about non gaming helping with

Speaker 14

the

Speaker 13

supply. So do you expect market share gain on mediation? And how will the additional supply over time help the gaming business?

Speaker 1

Look, our market share is really high. Okay. So setting aside market share, let's just talk about sheer inventory. We're getting new game publishers all the time that run game ads. We're the best at monetizing it at this point.

Speaker 1

And so that aspect of the business growth in gaming supply is there. Now that's just sort of organic and natural, but it's not some step function opportunity. What I was referring to is if you look at the in app purchasing apps, most of them where a lot of consumer time is spent in gaming don't actually run ads. They don't run ads because if they can monetize a user at really effective rates with in app purchasing, why would they run ads to their competition? And King was a perfect example of this and they used to report underneath Activision when they were public pre acquisition.

Speaker 1

They launched ads with non gaming advertisers and created a lot of incremental revenue doing so. Traditionally, in the mobile gaming mediation market, vast, vast majority of the ads were for games that were competitive to the publisher game. As we execute on bringing on more and more advertisers in non gaming categories, we think that it's going to be pretty reasonable to sell the Max product in our DSP platform to these gaming publishers who are monetizing predominantly or exclusively with in app purchasing, bring on that supply and that will create another expansion vector.

Speaker 13

Thank you.

Speaker 3

Alec Brandola with Wells Fargo has the next question.

Speaker 15

Hey guys, thanks so much for the question. I think you're describing a situation where the business is rapidly transitioning from demand constrained to supply constrained as you kind of expand the aperture of categories that you surface. I guess acknowledging that some games could increase their air balloon and that could increase available supply. How do you think about kind of the amount of spend growth the current supply base that kind of the mobile game environment or ecosystem has today could absorb? Like could the inventory be twice as valuable, three times as valuable?

Speaker 1

Do you

Speaker 15

think that's kind of the constraint on growth going forward?

Speaker 1

Yes. I don't think we're saying that's a constraint. I mean, in the last year, supply has been pretty constant and I think we grew 80%, ninety %. We're pretty early on both sides. On the demand side, we're just getting into areas that are going to help us much better monetize our inventory.

Speaker 1

And we've given out examples in terms of just ARPDAU that, some of the largest social properties are able to monetize that being significantly higher than the ARPDAO that we monetize this audience in today. And yet our ad unit is a full screen video. It requires some amount of engagement and viewing with the video and it's really high impact. The only reason we're not better monetizing today where we would say maybe we're supply constrained is because we don't have every type of advertiser across the world on our platform yet. Over the coming quarters, years, decade plus, as we onboard more and more advertisers and we're talking in the millions plus, that's going to allow us to have a lot more demand density.

Speaker 1

Our algorithms are only going to get stronger. Our data footprint is only going to get stronger and forget supply increase, same exact supply billion plus daily actives are just going to be better monetized. There's a long runway of growth there. The supply side is just gravy on top. It's really just an extra area that we think is just going to be given to us for free that's going to come.

Speaker 1

We certainly don't think it's going to be anywhere near as impactful as that demand expansion that's going to drive our growth.

Speaker 15

Thank you so much.

Speaker 3

Moving on to Arsenji Matavak with Wolf.

Speaker 14

Hey. Thanks for taking the question. I guess, what is the thought process you guys have on bringing Audience Plus out of pilots and into self serve? I guess, what have you learned with the pilots that will help you improve or make changes to the solution before making it self serve? And I guess, what's a good point to look at in 2025 on when we should expect it to go self-service?

Speaker 14

And then just one brief follow-up.

Speaker 1

I mean, we'll we'll launch self-service, I think, when we're ready for it. The most important keys there are, one, we're gonna have tools that automate every step of the process, including AI agents that are helping the advertiser get on board and get going, that really helped them through the process so that they feel like they're engaging with human beings, but they're engaging with bots and they're getting going. The other key piece is you have to build a lot of tools and and and content moderation controls when you open up a platform as big as ours. And at this point, I mean, in the advertising realm, we're you've got Facebook, you've got Google. We're now the next really big platform out there.

Speaker 1

We open that up, and we would get a lot of fraud that came on board if we didn't have a lot of tools written to prevent that. So So we're going to take it really seriously. We'll be conservative. I don't know that we have any need to accelerate growth right now. We're growing really, really quickly as it is and controlling the pace, but we're developing all these tools in the background.

Speaker 1

And once we're ready, we'll bring it out. We'll let you all know. And we think it'll be very impactful, not just for a moment in time, but that'll compound over quarters, years, and decade plus.

Speaker 14

Got it. And thanks for providing the segmented guidance. I just wanted to understand with the app sales, is it gonna be tranched out where you're gonna roll off a few studios over time throughout the year? Or is it, hey, once it closes, all 10 studios are off, no more apps revenue, and that's kind of the way the mechanism will be, and that would happen when would that be at the end of the quarter or trying to understand the timing dynamics for apps revenue modeling fees here?

Speaker 5

So we're

Speaker 2

gonna be we're gonna be selling the entirety of the apps business targeting for that to close within q two. Obviously, we may be subject to a regulatory approval. So that timing may change slightly, but that's kind of where we're targeting is within q two.

Speaker 14

Got it. Thank you.

Speaker 10

You're welcome.

Speaker 3

Next question will come from Eric Sheridan with Goldman Sachs.

Speaker 16

Thanks so much for taking the question. Guys, I wanted to go back to one of the five, initiatives you talked about for 2025, personalizing ad experiences. How much of that initiative can be done with what's already been built today versus incremental investments you need to make against the goals of personalization over the medium to long term? And from the outside looking in, what we should we be watching in terms of how you might implement that and how it might be rolled out in the business more broadly in the years ahead? Thanks so much.

Speaker 1

Yeah. Thanks, Harry. This is all research and development right now. And just to break down what it means, today, if you've got a game, let's just use Candy Crush again as an example, a human being is uploading 20 ads. The end user that sees ads for the Candy Crush campaign run through us sees one of those 20 ads.

Speaker 1

The in the middle, the AI will determine which one of those 20 to place. Now that's not very personalized. It's very static, and the user is seeing the exact same sort of format of ad and the exact same type of video as all the other users who are seeing that campaign. Now with generative AI and these large language models, you can imagine you can run those top creatives through a model and create many variations. Facebook and Google are talking about this too, generative AI enabled ads.

Speaker 1

It's something that we're working on. We think it'll be very impactful in driving consumer response to the ad unit. It's trickier than a text ad because we've got a full screen video experience. Plus a lot of times, we've got HTML. And in the gaming realm, we we've got even a mini game inside the HTML.

Speaker 1

So there's a lot of work to do to personalize that experience. And then there's a lot of work to do to build a model that can can do it do it automatically and then be able to process it within the constraint of the GPUs that we have. But But it's something that we're working on and we think will be impactful when it rolls out and it's something that's in focus for us this year.

Speaker 7

Thank you.

Speaker 3

Adam and Matt, we have time for one more question come from Bernie McTiernan with Needham and Company.

Speaker 17

Great. Thanks for taking the question. Maybe just to follow-up on Eric's question on personalization. From some of the checks that we've done, it seems that ecommerce brands are largely using social ads within mobile gaming. Is that an opportunity for you guys that we can help actually make games or ads that look more like mobile gaming ads for e commerce and other verticals?

Speaker 1

Yeah. Possibly. I mean, look, we hope not to be the ones deciding that. We hope the the AI and the machines are the ones deciding that. And the beauty is once you're in a machine created realm, you're gonna be able to create way more variations than the human being can.

Speaker 1

So whether it's an e commerce product somehow gamified in the advertisement or something that we can't imagine right now, In theory, the machine is going to be able to do that and the advertiser and the consumer will gain the benefit of all those new ad variations that will be outputted out of our system.

Speaker 17

Got it. And then just one last one for me. Any feedback that you're hearing from the gaming companies as you're moving into e commerce and other verticals?

Speaker 1

I mean, like the gaming companies are seeing better performance on our platform every single quarter. So they're obviously happy. We're a catalyst for their growth and really a requirement for their growth at this point. The publishers themselves, there's been some social commentary on this. When they start seeing more and more of their impressions shifting to ecommerce, they absolutely love it.

Speaker 1

If you're a game publisher, your worst nightmare would have been, I'm gonna monetize my game with all of my competition's ads. That that just sucks as an end product, but that's all they had. And so we allow all of our Max publishers to see the advertising list run. Some of those publishers have commented about the number of impressions that are shifting to non gaming categories. When you see that commentary, they're absolutely excited about it.

Speaker 5

Thank you.

Speaker 3

And again, this concludes the question and answer session and the webinar for this quarter. We thank you all for joining us and look forward to seeing you again next quarter. Take care until then.

Speaker 1

Thanks, everyone. Thank you.

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